SEC Filing - Carriage Services, Inc.

View:

csv-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM			10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ____________


Commission File Number:			1-11961

CARRIAGE SERVICES, INC.

(Exact name of registrant as specified in its charter)


Delaware			76-0423828
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

3040 Post Oak Boulevard, Suite 300

Houston, Texas, 77056

(Address of principal executive offices)

(713) 332-8400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $.01 per share	CSV	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s Common Stock, $.01 par value per share, outstanding as of November 3, 2023 was 14,981,459.

CARRIAGE SERVICES, INC.

INDEX


			Page
PART I – FINANCIAL INFORMATION

Item 1. Financial Statements			3

Unaudited Consolidated Balance Sheet as of December 31, 2022 and September 30, 2023			3

Unaudited Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2022 and 2023			4

Unaudited Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2022 and 2023			5

Unaudited Consolidated Statements of Changes in Stockholders' Equity for the Three and Nine Months ended September 30, 2022 and 2023			6

Condensed Notes to Consolidated Financial Statements			8

Cautionary Statement on Forward–Looking Statements			33

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			35

Item 3. Quantitative and Qualitative Disclosures About Market Risk			47

Item 4. Controls and Procedures			48

PART II – OTHER INFORMATION

Item 1. Legal Proceedings			49

Item 1A. Risk Factors			49

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			51

Item 3. Defaults Upon Senior Securities			51

Item 4. Mine Safety Disclosures			51

Item 5. Other Information			51

Item 6. Exhibits			51

SIGNATURE			52

INDEX OF EXHIBITS			53

- 2 -

PART I – FINANCIAL INFORMATION

Item 1.Financial Statements.

CARRIAGE SERVICES, INC.

CONSOLIDATED BALANCE SHEET

(unaudited and in thousands, except share data)


	December 31, 2022		September 30, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	1,170	$	1,675
Accounts receivable, net	24,458		25,524
Inventories	7,613		9,088
Prepaid and other current assets	4,733		4,030
Total current assets	37,974		40,317
Preneed cemetery trust investments	95,065		92,583
Preneed funeral trust investments	104,553		106,433
Preneed cemetery receivables, net	26,672		34,332
Receivables from preneed funeral trusts, net	19,976		21,295
Property, plant and equipment, net	278,106		288,407
Cemetery property, net	104,170		113,199
Goodwill	410,137		423,643
Intangible and other non-current assets, net	32,930		37,221
Operating lease right-of-use assets	17,060		15,987
Cemetery perpetual care trust investments	66,307		82,042
Total assets	$	1,192,950	$	1,255,459
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of debt and lease obligations	$	3,172	$	3,811
Accounts payable	11,675		11,558
Accrued and other liabilities	30,621		37,977

Total current liabilities	45,468		53,346
Acquisition debt, net of current portion	3,438		3,335
Credit facility	188,836		185,856

Senior notes	395,243		395,737
Obligations under finance leases, net of current portion	4,743		6,724
Obligations under operating leases, net of current portion	17,315		15,736
Deferred preneed cemetery revenue	51,746		62,384
Deferred preneed funeral revenue	32,029		40,343
Deferred tax liability	48,820		48,907
Other long-term liabilities	3,065		1,504
Deferred preneed cemetery receipts held in trust	95,065		92,583
Deferred preneed funeral receipts held in trust	104,553		106,433
Care trusts’ corpus	65,495		81,299
Total liabilities	1,055,816		1,094,187
Commitments and contingencies:
Stockholders’ equity:
Common stock, $0.01 par value; 80,000,000 shares authorized and 26,359,876 and 26,609,277 shares issued, respectively and 14,732,058 and 14,981,459 shares outstanding, respectively	264		266
Additional paid-in capital	238,780		241,141
Retained earnings	176,843		198,618
Treasury stock, at cost; 11,627,818 shares	(278,753)		(278,753)
Total stockholders’ equity	137,134		161,272
Total liabilities and stockholders’ equity	$	1,192,950	$	1,255,459

The accompanying condensed notes are an integral part of these Consolidated Financial Statements.

- 3 -

CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share data)


	Three months ended September 30,				Nine months ended September 30,
	2022		2023		2022		2023
Revenue:
Service revenue	$	42,992	$	43,708	$	135,279	$	136,437
Property and merchandise revenue	37,607		40,287		120,495		125,928
Other revenue	6,898		6,499		20,484		21,321
	87,497		90,494		276,258		283,686
Field costs and expenses:
Cost of service	22,317		22,650		65,805		69,202
Cost of merchandise	28,668		30,302		87,304		92,255
Cemetery property amortization	1,278		1,318		4,314		4,411
Field depreciation expense	3,281		3,634		9,831		10,546
Regional and unallocated funeral and cemetery costs	5,096		3,771		17,409		13,339
Other expenses	1,259		1,407		3,807		4,264
	61,899		63,082		188,470		194,017
Gross profit	25,598		27,412		87,788		89,669
Corporate costs and expenses:
General, administrative and other	10,383		11,303		28,123		31,682

Net (gain) loss on divestitures, disposals and impairments charges	(7)		423		(433)		929
Operating income	15,222		15,686		60,098		57,058

Interest expense	6,678		9,278		18,208		27,213


Net gain on property damage, net of insurance claims	—		(379)		(3,275)		(343)
Other, net	(95)		11		(78)		(636)
Income before income taxes	8,639		6,776		45,243		30,824
Expense for income taxes	2,640		2,058		12,578		8,899
Tax adjustment related to discrete items	139		73		(496)		150
Total expense for income taxes	2,779		2,131		12,082		9,049
Net income	$	5,860	$	4,645	$	33,161	$	21,775

Basic earnings per common share:	$	0.40	$	0.31	$	2.22	$	1.46
Diluted earnings per common share:	$	0.38	$	0.30	$	2.09	$	1.39

Dividends declared per common share:	$	0.1125	$	0.1125	$	0.3375	$	0.3375

Weighted average number of common and common equivalent shares outstanding:
Basic	14,689		14,820		14,908		14,791
Diluted	15,537		15,514		15,849		15,480

The accompanying condensed notes are an integral part of these Consolidated Financial Statements.

- 4 -

CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)


	Nine months ended September 30,
	2022		2023
Cash flows from operating activities:
Net income	$	33,161	$	21,775
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	14,611		15,623
Provision for credit losses	2,292		2,314
Stock-based compensation expense	4,577		6,155
Deferred income tax expense	1,699		87
Amortization of intangibles	957		982
Amortization of debt issuance costs	397		524
Amortization and accretion of debt	368		384


Net (gain) loss on divestitures, disposals and impairment charges	(433)		929
Net gain on property damage, net of insurance claims	(3,275)		(343)
Gain on sale of real property	—		(658)
Other	(153)		—

Changes in operating assets and liabilities that provided (used) cash:
Accounts and preneed receivables	(3,053)		(4,607)
Inventories, prepaid and other current assets	2,785		(52)
Intangible and other non-current assets	(1,381)		(2,285)
Preneed funeral and cemetery trust investments	(12,585)		990
Accounts payable	(2,451)		(117)
Accrued and other liabilities	(3,080)		5,297
Incentive payment from vendor	—		6,000
Deferred preneed funeral and cemetery revenue	2,852		11,110
Deferred preneed funeral and cemetery receipts held in trust	12,758		(2,259)
Net cash provided by operating activities	50,046		61,849

Cash flows from investing activities:
Acquisitions of businesses and real property	(8,876)		(44,000)

Proceeds from divestitures and sale of other assets	4,313		2,296
Proceeds from insurance claims	2,209		1,388
Capital expenditures	(20,346)		(13,069)
Net cash used in investing activities	(22,700)		(53,385)

Cash flows from financing activities:
Borrowings from the credit facility	114,600		68,100
Payments against the credit facility	(101,000)		(71,500)
Payment of debt issuance costs for the credit facility and senior notes	(339)		—




Payments on acquisition debt and obligations under finance leases	(314)		(491)

Proceeds from the exercise of stock options and employee stock purchase plan contributions	1,438		1,207
Taxes paid on restricted stock vestings and exercise of stock options	(287)		(252)
Dividends paid on common stock	(5,108)		(5,023)
Purchase of treasury stock	(36,663)		—

Net cash used in financing activities	(27,673)		(7,959)

Net increase (decrease) in cash and cash equivalents	(327)		505
Cash and cash equivalents at beginning of period	1,148		1,170
Cash and cash equivalents at end of period	$	821	$	1,675

The accompanying condensed notes are an integral part of these Consolidated Financial Statements.

- 5 -

CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited and in thousands)


	Three months ended September 30, 2022

	Shares Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Total













Balance – June 30, 2022	14,698	$	263	$	238,571	$	162,763	$	(278,753)	$	122,844
Net income	—	—		—		5,860		—		5,860
Issuance of common stock from employee stock purchase plan	14	—		377		—		—		377
Issuance of common stock to directors and board advisor	2	—		76		—		—		76


Cancellation and surrender of restricted stock	(1)	—		—		—		—		—
Stock-based compensation expense	—	—		1,416		—		—		1,416
Dividends on common stock	—	—		(1,653)		—		—		(1,653)


Balance – September 30, 2022	14,713	$	263	$	238,787	$	168,623	$	(278,753)	$	128,920


	Three months ended September 30, 2023

	Shares Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Total
Balance – June 30, 2023	14,958	$	266	$	240,681	$	193,973	$	(278,753)	$	156,167
Net income	—	—		—		4,645		—		4,645
Issuance of common stock from employee stock purchase plan	12	—		284		—		—		284
Issuance of common stock to directors and board advisor	5	—		161		—		—		161

Exercise of stock options	7	—		(133)		—		—		(133)

Stock-based compensation expense	—	—		1,831		—		—		1,831
Dividends on common stock	—	—		(1,683)		—		—		(1,683)


Balance – September 30, 2023	14,982	$	266	$	241,141	$	198,618	$	(278,753)	$	161,272

- 6 -

CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited and in thousands)


	Nine months ended September 30, 2022

	Shares Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Total













Balance – December 31, 2021	15,332	$	263	$	236,809	$	135,462	$	(244,519)	$	128,015
Net income	—	—		—		33,161		—		33,161
Issuance of common stock from employee stock purchase plan	39	—		1,378		—		—		1,378
Issuance of common stock to directors and board advisor	7	—		322		—		—		322

Exercise of stock options	9	—		(22)		—		—		(22)
Cancellation and surrender of restricted stock	(6)	—		(205)		—		—		(205)
Stock-based compensation expense	—	—		4,255		—		—		4,255
Dividends on common stock	—	—		(5,108)		—		—		(5,108)

Treasury stock acquired	(695)	—		—		—		(34,234)		(34,234)
Other	27	—		1,358		—		—		1,358
Balance – September 30, 2022	14,713	$	263	$	238,787	$	168,623	$	(278,753)	$	128,920


	Nine months ended September 30, 2023

	Shares Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Total
Balance – December 31, 2022	14,732	$	264	$	238,780	$	176,843	$	(278,753)	$	137,134
Net income	—	—		—		21,775		—		21,775
Issuance of common stock from employee stock purchase plan	50	—		1,207		—		—		1,207
Issuance of common stock to directors and board advisor	11	—		338		—		—		338
Issuance of common stock to former executive	30	—		826		—		—		826
Issuance of restricted stock	142	2		(2)		—		—		—
Exercise of stock options	12	—		(174)		—		—		(174)
Cancellation and surrender of common and restricted stock	(3)	—		(78)		—		—		(78)
Stock-based compensation expense	—	—		4,991		—		—		4,991
Dividends on common stock	—	—		(5,023)		—		—		(5,023)

Other	8	—		276		—		—		276
Balance – September 30, 2023	14,982	$	266	$	241,141	$	198,618	$	(278,753)	$	161,272

The accompanying condensed notes are an integral part of these Consolidated Financial Statements.

- 7 -

CARRIAGE SERVICES, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Carriage Services, Inc. (“Carriage,” the “Company,” “we,” “us,” or “our”) is a leading provider of funeral and cemetery services and merchandise in the United States. Our operations are reported in two business segments: Funeral Home operations, which currently accounts for approximately 70% of our total revenue and Cemetery operations, which currently accounts for approximately 30% of our total revenue. At September 30, 2023, we operated 171 funeral homes in 26 states and 32 cemeteries in 11 states.

Our funeral home operations are principally service businesses that generate revenue from sales of burial and cremation services and related merchandise, such as caskets and urns. Funeral services include consultation, the removal and preparation of remains, the sale of caskets and related funeral merchandise, the use of funeral home facilities for visitation and memorial services and transportation services. We provide funeral services and products on both an “atneed” (time of death) and “preneed” (planned prior to death) basis.

Our cemetery operations generate revenue primarily through sales of cemetery interment rights (primarily grave sites, lawn crypts, mausoleum spaces and niches), related cemetery merchandise (such as memorial markers, outer burial containers and monuments) and services (interments, inurnments and installation of cemetery merchandise). We provide cemetery services and products on both an atneed and preneed basis.

Principles of Consolidation and Interim Condensed Disclosures

Our unaudited consolidated financial statements include the Company and its subsidiaries. All intercompany balances and transactions have been eliminated. Our interim consolidated financial statements are unaudited but include all adjustments, which consist of normal, recurring accruals, that are necessary for a fair presentation of our financial position and results of operations as of and for the interim periods presented.

There have been no material changes in our accounting policies previously disclosed in Part II, Item 8 “Financial Statements and Supplementary Data” in Note 1 in our Annual Report on Form 10-K for the year ended December 31, 2022. In addition, our unaudited consolidated financial statements have been prepared in a manner consistent with the accounting principles described in our Annual Report on Form 10-K for the year ended December 31, 2022 unless otherwise disclosed herein, and should be read in conjunction therewith.

Use of Estimates

The preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. On an ongoing basis, we evaluate our critical estimates and judgments, which include those related to the impairment of goodwill and the fair value measurements used in business combinations. These policies are considered critical because they may result in fluctuations in our reported results from period to period due to the significant judgments, estimates and assumptions about complex and inherently uncertain matters and because the use of different judgments, assumptions or estimates could have a material impact on our financial condition or results of operations. Actual results may differ from these estimates and such estimates may change if the underlying conditions or assumptions change. Historical performance should not be viewed as indicative of future performance because there can be no assurance the margins, operating income and net earnings, as a percentage of revenue, will be consistent from period to period.

Cash and Cash Equivalents

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Inventory

Inventory consists primarily of caskets, outer burial containers and cemetery monuments and markers and is recorded at the lower of its cost basis or net realizable value. Inventory is relieved using specific identification in fulfillment of performance obligations on our contracts.

- 8 -

Deferred Revenue

During the nine months ended September 30, 2023, we withdrew $8.6 million of realized capital gains and earnings from our preneed funeral and cemetery trust investments. In certain states, we are allowed to make these withdrawals prior to the delivery of preneed merchandise and service contracts. The realized capital gains and earnings withdrawn increase our cash flow from operations, but are not recognized as revenue in our Consolidated Statements of Operations, however, they reduce our Preneed funeral trust investments and Preneed cemetery trust investments and increase our Deferred preneed funeral revenue and Deferred preneed cemetery revenue.

Additionally, during the nine months ended September 30, 2023, we received a $6.0 million incentive payment from a vendor for entering into a strategic partnership agreement to market and sell prearranged funeral services in the future, which increased our cash flow from operations and Deferred preneed funeral revenue. The incentive payment will be deferred until we complete our implementation of the program and begin selling prearranged funeral services.

Goodwill

The excess of the purchase price over the fair value of identifiable net assets of funeral home businesses and cemeteries we acquire is recorded as goodwill. Goodwill has an indefinite life and is not subject to amortization. As such, we test goodwill for impairment on an annual basis as of August 31st each year. Under current guidance, we are permitted to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test.

We performed our most recent annual goodwill impairment test as of August 31, 2023. We intend to perform a quantitative impairment test at least once every three years and perform a qualitative assessment during the remaining two years. We conducted a quantitative assessment in 2022 and a qualitative assessment in 2023. In addition to our annual test, we assess the impairment of goodwill whenever events or changes in circumstances indicate that the carrying value of a reporting unit may be greater than fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant negative industry or economic trends and significant adverse changes in the business climate, which may be indicated by a decline in our market capitalization or decline in operating results.

Our quantitative goodwill impairment test involves estimates and management judgment. In the quantitative analysis, we compare the fair value of each reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, the goodwill of that reporting unit is not considered impaired. We determine fair value for each reporting unit using both an income approach, weighted 90%, and a market approach, weighted 10%. Our methodology for determining an income-based fair value is based on discounting projected future cash flows. The projected future cash flows include assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows discounted at our weighted average cost of capital based on market participant assumptions. Our methodology for determining a market approach fair value utilizes the guideline public company method, in which we rely on market multiples of comparable companies operating in the same industry as the individual reporting units. In accordance with the guidance, if the fair value of the reporting unit is less than its carrying amount an impairment charge is recorded in an amount equal to the difference.

For our 2023 annual qualitative assessment, we determined that there were no factors that would indicate the need to perform an additional quantitative goodwill impairment test. We concluded that it is more-likely-than-not that the fair value of our reporting units is greater than their carrying value and thus there was no impairment to goodwill. For our 2022 annual quantitative assessment, there was no impairment to goodwill as the fair value of our reporting units was greater than the carrying value.

When we divest a portion of a reporting unit that constitutes a business in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), we allocate goodwill associated with that business to be included in the gain or loss on divestiture. The goodwill allocated is based on the relative fair value of the business being divested and the portion of the reporting unit that will be retained. Additionally, after each divestiture, we will test the goodwill remaining in the portion of the reporting unit to be retained for impairment using a qualitative assessment unless we deem a quantitative assessment to be appropriate to ensure the fair value of our reporting units is greater than their carrying value.

See Note 4 to the Consolidated Financial Statements included herein for additional information related to our goodwill.

Intangible Assets

Our intangible assets include tradenames resulting from acquisitions and are included in Intangible and other non-current assets, net on our Consolidated Balance Sheet. Our tradenames are considered to have an indefinite life and are not subject to amortization. As such, we test our intangible assets for impairment on an annual basis as of August 31st each year. Under current guidance, we are permitted to first assess qualitative factors to determine whether it is more-likely-than-not that the fair

- 9 -

value of the tradename is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative impairment test.

We performed our most recent annual intangible assets impairment test as of August 31, 2023. We intend to perform a quantitative impairment test at least once every three years and perform a qualitative assessment during the remaining two years. We conducted a quantitative assessment in 2022 and a qualitative assessment in 2023. In addition to our intangible assets annual test, we assess the impairment of intangible assets whenever certain events or changes in circumstances indicate that the carrying value of the intangible asset may be greater than the fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant under-performance relative to historical or projected future operating results and significant negative industry or economic trends.

Our quantitative intangible asset impairment test involves estimates and management judgment. Our quantitative analysis is performed using the relief from royalty method, which measures the tradenames by determining the value of the royalties that we are relieved from paying due to our ownership of the asset. We determine the fair value of the asset by discounting the cash flows that represent a savings in lieu of paying a royalty fee for use of the tradename. The discounted cash flow valuation uses projections of future cash flows and includes assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows and the determination and application of an appropriate royalty rate and discount rate. To estimate the royalty rates for the individual tradename, we mainly rely on the profit split method, but also consider the comparable third-party license agreements and the return on asset method. A scorecard is used to assess the relative strength of the individual tradename to further adjust the royalty rates selected under the profit-split method for qualitative factors. In accordance with the guidance, if the fair value of the tradename is less than its carrying amount, then an impairment charge is recorded in an amount equal to the difference.

As a result of our 2023 qualitative assessment, we determined that there were factors that would indicate the need to perform an additional quantitative impairment test for certain funeral home businesses. As a result of this additional quantitative impairment test, we recorded an impairment to the tradenames for two of our funeral homes of $0.2 million, during the three and nine months ended September 30, 2023, as the carrying amount of these tradenames exceeded the fair value. For our 2022 assessment, there was no impairment to intangibles assets.

See Note 10 to the Consolidated Financial Statements included herein for additional information related to our intangible assets.

Property, Plant and Equipment

Property, plant and equipment is comprised of the following (in thousands):


	December 31, 2022		September 30, 2023
Land	$	84,405	$	85,660
Buildings and improvements	251,778		262,856
Furniture, equipment and automobiles	70,522		76,653
Property, plant and equipment, at cost	406,705		425,169
Less: accumulated depreciation	(128,599)		(136,762)
Property, plant and equipment, net	$	278,106	$	288,407

During the nine months ended September 30, 2023, we acquired $12.8 million of property, plant and equipment related to our acquisition of a business located in Bakersfield, CA, as more fully described in Note 3 to the Consolidated Financial Statements. Additionally, we sold real property for $1.2 million, with a carrying value of $0.6 million, resulting in a gain on the sale of $0.6 million. We also divested one funeral home that had a carrying value of property, plant and equipment of $0.3 million, which was included in the loss on the sale of divestitures and recorded in Net (gain) loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations.

During the nine months ended September 30, 2022, we acquired real property for $5.6 million. Additionally, we sold real property for $3.3 million, with a carrying value of $1.8 million, resulting in a gain on the sale of $1.4 million. We also divested two funeral homes that had a carrying value of property, plant and equipment of $0.7 million, which was included in the loss on the sale of divestitures and recorded in Net (gain) loss on divestitures, disposals and impairment charges.

Our growth and maintenance capital expenditures totaled $5.3 million and $2.4 million for the three months ended September 30, 2022 and 2023, respectively and $15.1 million and $7.9 million for the nine months ended September 30, 2022 and 2023, respectively, for property, plant and equipment. In addition, we recorded depreciation expense of $3.4 million and $3.8 million for the three months ended September 30, 2022 and 2023, respectively and $10.1 million and $11.0 million for the nine months ended September 30, 2022 and 2023, respectively.

- 10 -

Cemetery Property

Cemetery property was $104.2 million and $113.2 million, net of accumulated amortization of $59.0 million and $63.0 million at December 31, 2022 and September 30, 2023, respectively. When cemetery property is sold, the value of the cemetery property (interment right costs) is expensed as amortization using the specific identification method in the period in which the sale of the interment right is recognized as revenue. Our growth capital expenditures for cemetery property development totaled $1.5 million and $1.6 million for the three months ended September 30, 2022 and 2023 and $5.2 million and $5.1 million for the nine months ended September 30, 2022 and 2023, respectively. We recorded amortization expense for cemetery interment rights of $1.3 million for both the three months ended September 30, 2022 and 2023 and $4.3 million and $4.4 million for the nine months ended September 30, 2022 and 2023, respectively.

During the nine months ended September 30, 2023, we acquired cemetery property for $9.0 million related to our acquisition of a business located in Bakersfield, CA, as more fully described in Note 3 to the Consolidated Financial Statements. We also divested two cemeteries that had a carrying value of cemetery property of $0.8 million, which was included in the loss on the sale of divestitures and recorded in Net (gain) loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations.

Income Taxes

Income tax expense was $2.8 million and $2.1 million for the three months ended September 30, 2022 and 2023, respectively and $12.1 million and $9.0 million for the nine months ended September 30, 2022 and 2023, respectively. Our operating tax rate before discrete items was 30.6% and 30.4% for the three months ended September 30, 2022 and 2023, respectively and 27.8% and 28.9% for the nine months ended September 30, 2022 and 2023, respectively.

Subsequent Events

We have evaluated events and transactions during the period subsequent to September 30, 2023 through the date the financial statements were issued for potential recognition or disclosure in the accompanying financial statements covered by this report.

2.RECENTLY ISSUED ACCOUNTING STANDARDS

Credit Losses - Vintage Disclosures

In March 2022, the FASB issued ASU, Financial Instruments - Credit Losses (“Topic 326”) to make the requirement to disclose gross write-offs by class of financing receivable and major security type consistent for all public business entities. The amendment in this update provides specific guidance on the disclosure for current period write-offs by year of origination for financing receivables. This amendment is effective for fiscal years beginning after December 15, 2022, and therefore was effective for us beginning January 1, 2023. Our adoption of these amendments had no impact on our consolidated financial statements.

3. BUSINESS COMBINATIONS

Tangible and intangible assets acquired and liabilities assumed are recorded at fair value and goodwill is recognized for any difference between the price of the acquisition and fair value. We recognize the assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at the acquisition date, measured at the fair value as of that date. Acquisition related costs are recognized separately from the acquisition and are expensed as incurred. We customarily estimate related transaction costs known at closing. To the extent that information not available to us at the closing date subsequently becomes available during the measurement period, we may adjust goodwill, intangible assets, assets or liabilities associated with the acquisition.

On March 22, 2023, we acquired a business consisting of three funeral homes, two cemeteries and one cremation focused business in the Bakersfield, California area for $44.0 million in cash. We acquired substantially all of the assets and assumed certain operating liabilities of this business.

The pro forma impact of this acquisition on prior periods is not presented, as the impact is not significant to our reported results. The results of the acquired business are reflected in our Consolidated Statements of Operations from the date of acquisition.

- 11 -

The following table summarizes the breakdown of the purchase price allocation for our Bakersfield, CA business acquisition (in thousands):


	Initial Purchase Price Allocation		Adjustments		Adjusted Purchase Price Allocation
Current assets	$	7,087	$	131	$	7,218
Preneed trust assets	—		11,428		11,428
Property, plant & equipment	12,577		245		12,822
Cemetery property	9,035		—		9,035
Goodwill	13,612		(106)		13,506
Intangible and other non-current assets	3,763		—		3,763
Assumed liabilities	(300)		(66)		(366)

Preneed trust liabilities	—		(11,428)		(11,428)
Deferred revenue	(1,774)		(204)		(1,978)
Purchase price	$	44,000	$	—	$	44,000

The current assets relate to accounts receivable and inventory. The intangible and other non-current assets relate to the fair value of tradenames and right-of-use operating lease assets. The assumed liabilities relate to operating lease obligations and commissions payable. As of September 30, 2023, our accounting for this acquisition is complete.

The following table summarizes the fair value of the assets acquired and liabilities assumed for this business (in thousands):


Acquisition Date	Type of Business	Market	Assets Acquired (Excluding Goodwill)		Goodwill Recorded		Liabilities and Debt Assumed
March 22, 2023	Three Funeral Homes, Two Cemeteries and One Cremation Focused Business	Bakersfield, CA	$	44,266	$	13,506	$	(13,772)

On August 8, 2022, we acquired a business consisting of two funeral homes in Kissimmee, FL for $6.3 million in cash. We acquired substantially all of the assets and assumed certain operating liabilities of this business.

The following table summarizes the breakdown of the purchase price allocation for our Kissimmee, FL business acquisition (in thousands):


	Purchase Price Allocation
Current assets	$	28
Preneed trust assets	1,439
Property, plant & equipment	2,986

Goodwill	2,694
Intangible and other non-current assets	542


Preneed trust liabilities	(1,439)

Purchase price	$	6,250

The intangible and other non-current assets relate to the fair value of tradenames and non-compete agreements.

The following table summarizes the fair value of the assets acquired and liabilities assumed for our Kissimmee, FL business acquisition (in thousands):


Acquisition Date	Type of Business	Market	Assets Acquired (Excluding Goodwill)		Goodwill Recorded		Liabilities and Debt Assumed
August 8, 2022	Two Funeral Homes	Kissimmee, FL	$	4,995	$	2,694	$	(1,439)

- 12 -

4.GOODWILL

The following table presents changes in goodwill in the accompanying Consolidated Balance Sheet (in thousands):


	December 31, 2022		September 30, 2023
Goodwill at the beginning of the period	$	391,972	$	410,137
Increase in goodwill related to acquisitions	19,511		13,506
Decrease in goodwill related to divestitures	(901)		—
Decrease in goodwill related to assets held for sale	(445)		—
Goodwill at the end of the period	$	410,137	$	423,643

During the nine months ended September 30, 2023, we recognized $13.5 million in goodwill related to our acquisition of a business located in Bakersfield, CA, of which $4.5 million was allocated to our cemetery segment and $9.0 million was allocated to our funeral home segment.

See Note 1 to the Consolidated Financial Statements included herein, for a discussion of the methodology used for our

goodwill impairment test.

5.DIVESTED OPERATIONS

During the three months ended September 30, 2023, we sold one funeral home for $0.3 million. During the nine months ended September 30, 2023, we sold two funeral homes and two cemeteries for an aggregate of $1.1 million and merged one funeral home with another business we own in a nearby market.

During the three months ended September 30, 2022, we did not sell any funeral homes or cemeteries. During the nine months ended September 30, 2022, we sold two funeral homes for an aggregate of $0.9 million and merged one funeral home with another business we own in a nearby market.

The operating results of these divested funeral homes and cemeteries are reflected on our Consolidated Statements of Operations as shown in the table below (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2022		2023		2022		2023
Revenue	$	—	$	18	$	296	$	242

Operating income	—		8		25		3
Loss on divestitures(1)	—		(24)		(703)		(107)
Income tax benefit	—		5		188		30
Net loss from divested operations, after tax	$	—	$	(11)	$	(490)	$	(74)

(1)

Loss on divestitures is recorded in Net (gain) loss on divestitures, disposals and impairments charges on our Consolidated Statements of Operations.

6.RECEIVABLES

Accounts Receivable

Our funeral receivables are recorded in Accounts receivable, net and primarily consist of amounts due for funeral services already performed.

Atneed cemetery receivables and preneed cemetery receivables with payments expected to be received within one year from the balance sheet date are also recorded in Accounts receivable, net. Preneed cemetery receivables with payments expected to be received beyond one year from the balance sheet date are recorded in Preneed cemetery receivables, net.

Accounts receivable is comprised of the following (in thousands):


	September 30, 2023
	Funeral		Cemetery		Corporate		Total
Trade and financed receivables	$	7,983	$	18,240	$	—	$	26,223
Other receivables	336		391		100		827
Allowance for credit losses	(285)		(1,241)		—		(1,526)
Accounts receivable, net	$	8,034	$	17,390	$	100	$	25,524

- 13 -


	December 31, 2022
	Funeral		Cemetery		Corporate		Total
Trade and financed receivables	$	9,518	$	14,429	$	—	$	23,947
Other receivables	643		833		48		1,524
Allowance for credit losses	(311)		(702)		—		(1,013)
Accounts receivable, net	$	9,850	$	14,560	$	48	$	24,458

Other receivables include supplier rebates, commissions due from third party insurance companies and perpetual care income receivables. We do not provide an allowance for credit losses for these receivables as we have historically not had any collectability issues nor do we expect any in the foreseeable future.

The following table summarizes the activity in our allowance for credit losses by segment (in thousands):


	January 1, 2023		Provision for Credit Losses		Write Offs		Recoveries		September 30, 2023
Trade and financed receivables:
Funeral	$	(311)	$	(858)	$	1,745	$	(861)	$	(285)
Cemetery	(702)		(548)		9		—		(1,241)
Total allowance for credit losses on trade and financed receivables	$	(1,013)	$	(1,406)	$	1,754	$	(861)	$	(1,526)

Balances due on undelivered preneed funeral trust contracts have been reclassified to reduce Deferred preneed funeral revenue on our Consolidated Balance Sheet of $8.9 million and $10.7 million at December 31, 2022 and September 30, 2023, respectively. As these performance obligations are to be completed after the date of death, we cannot quantify the recognition of revenue in future periods. However, we estimate an average maturity period of ten years for preneed funeral contracts.

Preneed Cemetery Receivables

Our preneed cemetery receivables are comprised of the following (in thousands):


	December 31, 2022		September 30, 2023
Interment rights	$	45,351	$	58,032
Merchandise and services	8,585		10,574
Unearned finance charges	4,894		5,407
Preneed cemetery receivables	$	58,830	$	74,013

The components of our preneed cemetery receivables are as follows (in thousands):


	December 31, 2022		September 30, 2023
Preneed cemetery receivables	$	58,830	$	74,013
Less: unearned finance charges	(4,894)		(5,407)
Preneed cemetery receivables, at amortized cost	$	53,936	$	68,606
Less: allowance for credit losses	(1,985)		(3,548)
Less: balances due on undelivered cemetery preneed contracts	(11,552)		(13,727)
Less: amounts in accounts receivable	(13,727)		(16,999)
Preneed cemetery receivables, net	$	26,672	$	34,332

The following table summarizes the activity in our allowance for credit losses for Preneed cemetery receivables, net (in thousands):


	January 1, 2023		Provision for Credit Losses		Write Offs		September 30, 2023
Total allowance for credit losses on Preneed cemetery receivables, net	$	(1,283)	$	(908)	$	(116)	$	(2,307)

The amortized cost basis of our preneed cemetery receivables by year of origination at September 30, 2023 is as follows (in thousands):


	2023		2022		2021		2020		2019		Prior		Total
Total preneed cemetery receivables, at amortized cost	$	27,143	$	21,505	$	11,134	$	5,312	$	1,909	$	1,603	$	68,606

- 14 -

The aging of past due preneed cemetery receivables at September 30, 2023 is as follows (in thousands):


	31-60 Past Due		61-90 Past Due		91-120 Past Due		>120 Past Due		Total Past Due		Current		Total
Recognized revenue	$	1,174	$	739	$	648	$	3,686	$	6,247	$	48,632	$	54,879
Deferred revenue	281		294		124		1,292		1,991		17,143		19,134
Total contracts	$	1,455	$	1,033	$	772	$	4,978	$	8,238	$	65,775	$	74,013

Balances due on undelivered preneed cemetery contracts have been reclassified to reduce Deferred preneed cemetery revenue on our Consolidated Balance Sheet. The transaction price allocated to preneed merchandise and service performance obligations that were unfulfilled were $11.6 million and $13.7 million at December 31, 2022 and September 30, 2023, respectively. As these performance obligations are to be completed after the date of death, we cannot quantify the recognition of revenue in future periods. However, we estimate an average maturity period of eight years for preneed cemetery contracts.

7.FAIR VALUE MEASUREMENTS

We evaluated our financial assets and liabilities for those that met the criteria of the disclosure requirements and fair value framework. The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate the fair values of those instruments due to the short-term nature of the instruments. The fair values of our receivables on preneed cemetery contracts are impracticable to estimate because of the lack of a trading market and the diverse number of individual contracts with varying terms. Our acquisition debt and Credit Facility (as defined in Note 11) and Senior Notes (as defined in Note 12) are classified within Level 2 of the Fair Value Measurements hierarchy.

At September 30, 2023, the carrying value and fair value of our Credit Facility was $187.3 million. We believe that our Credit Facility bears interest at a rate that approximates prevailing market rates for instruments with similar characteristics and therefore, the carrying value of our Credit Facility approximates fair value. We estimate the fair value of our acquisition debt utilizing an income approach, which uses a present value calculation to discount payments based on current market rates as of the reporting date. At September 30, 2023, the carrying value of our acquisition debt was $3.9 million, which approximated its fair value. The fair value of our Senior Notes was $342.6 million at September 30, 2023 based on the last traded or broker quoted price.

We identified investments in fixed income securities, common stock and mutual funds presented within the preneed and perpetual care trust investments categories on our Consolidated Balance Sheet as having met the criteria for fair value measurement. Where quoted prices are available in an active market, investments held by the trusts are classified as Level 1 investments pursuant to the three-level valuation hierarchy. Our Level 1 investments include cash, U.S. treasury debt, common stock and equity mutual funds. Where quoted market prices are not available for the specific security, then fair values are estimated by using quoted prices of similar securities in active markets or inputs other than quoted prices that can corroborate observable market data. These investments are fixed income securities, including U.S. agency obligations, foreign debt, corporate debt, preferred stocks, certificates of deposit and fixed income mutual funds and other investments, all of which are classified within Level 2 of the valuation hierarchy.

In addition, we have an investment in a limited partnership fund, whose fair value has been estimated using the net asset value per share practical expedient described in ASC 820-10-35-59, Fair Value Measurement of Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) and therefore, has not been classified in the fair value hierarchy. The value of the investments in this fund cannot be redeemed because the investments include restrictions that do not allow for redemption within the first 12 months after acquisition. Our unfunded commitment for this investment at September 30, 2023 is $10.0 million.

Our receivables from preneed funeral trusts represent assets in trusts which are controlled and operated by third parties in which we do not have a controlling financial interest (less than 50%) in the trust assets. We account for these investments at cost. See Notes 8 and 9 to our Consolidated Financial Statements for the fair value hierarchy levels of our trust investments.

8.TRUST INVESTMENTS

Preneed trust investments represent trust fund assets that we are generally permitted to withdraw as the services and merchandise are provided to customers. Preneed funeral and cemetery contracts are secured by payments from customers, less amounts not required by law to be deposited into trust. These earnings are recognized in Other revenue on our Consolidated Statements of Operations, when a service is performed or merchandise is delivered. Trust management fees charged by our wholly-owned registered investment advisory firm (“CSV RIA”) are included as revenue in the period in which they are earned. Our investments are diversified across multiple industry segments using a balanced allocation strategy to minimize long-term risk. We do not intend to sell and it is likely that we will not be required to sell the securities prior to their anticipated recovery.

- 15 -

Cemetery perpetual care trust investments represent a portion of the proceeds from the sale of cemetery property interment rights that we are required by various state laws to deposit into perpetual care trust funds. The income earned from these perpetual care trusts offsets maintenance expenses for cemetery property and memorials. This trust fund income is recognized in Other revenue.

Changes in the fair value of our trust fund assets (Preneed funeral, cemetery and perpetual care trust investments) are offset by changes in the fair value of our trust fund liabilities (Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus) and reflected in Other, net. There is no impact on earnings until such time the services are performed or the merchandise is delivered, causing the contract to be withdrawn from the trust in accordance with state regulations and the gain or loss is allocated to the contract.

We rely on our trust investments to provide funding for the various contractual obligations that arise upon maturity of the underlying preneed contracts. Because of the long-term relationship between the establishment of trust investments and the required performance of the underlying contractual obligations, the impact of current market conditions that may exist at any given time is not necessarily indicative of our ability to generate profit on our future performance obligations.

Preneed Cemetery Trust Investments

The components of Preneed cemetery trust investments on our Consolidated Balance Sheet are as follows (in thousands):


	December 31, 2022		September 30, 2023
Preneed cemetery trust investments, at market value	$	98,269	$	95,632
Less: allowance for contract cancellation	(3,204)		(3,049)
Preneed cemetery trust investments	$	95,065	$	92,583

The cost and market values associated with preneed cemetery trust investments at September 30, 2023 are detailed below (in thousands):


	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses		Fair Market Value
Cash and money market accounts	1	$	9,177	$	—	$	—	$	9,177
Fixed income securities:

U.S. agency obligations	2	803		—		(75)		728
Foreign debt	2	9,246		959		(351)		9,854
Corporate debt	2	15,058		109		(4,872)		10,295
Preferred stock	2	11,524		528		(1,466)		10,586
Certificates of deposit	2	79		—		(9)